Is Dodge & Cox, the conservative San Francisco investment manager known for its plain-vanilla mutual funds, taking a turn to the wild side?

The company is asking shareholders to approve a series of proposals that would amend or remove restrictions on activities such as short selling, buying securities on margin or with borrowed money, investing in illiquid securities, writing put or call options and "investing in any company for the purpose of exercising control or management."

If it was almost any other company, these proposals would not raise eyebrows. Many fund companies have been delving into more esoteric securities and strategies, pushing the boundaries of what is allowed under federal securities law.

Although it was founded in 1930, the group has only five funds - three stock, one income and one balanced.

The proposals apply to all five funds. When she saw them in proxy statement, "it did jump out at me," says Laura Lallos, a fund analyst who follows Dodge & Cox for Morningstar. "After talking to them, I'm pretty confident this does not portend any changes in their strategies."

The firm insists it has no plans to start short-selling stocks or buying the illiquid shares of companies before they go public - as some other funds have.

Although it does not anticipate "any material change in the management of the Funds" as a result of the proposed removal of the restrictions, the removal "may afford the Funds' added flexibility in the future in pursuing their investment objectives and strategies and may avoid unnecessary confusion regarding the permissible investments and activities of the Funds," the company says in its proxy statement.

Relics of blue-sky laws

Some of the restrictions "are relics of the state blue-sky laws," says Charles Pohl, chairman and chief investment officer of Dodge & Cox.

Before 1996, states could put limits on mutual funds that went beyond what the federal law required, leading to a patchwork of regulations for funds sold nationwide. Since then, states have not been permitted to impose their own restrictions. Funds started since then generally don't have them and many older funds have changed or eliminated them.

Shareholder votes

Certain rules, known as fundamental restrictions, can only be changed by shareholder vote. Getting shareholder approval can be costly and time consuming.

A lot of companies, when they decide to make a change, decide to throw in the kitchen sink," Janachowski says. They ask shareholders to approve anything they might conceivably need in the next few years.

The last time Dodge & Cox went through this process was in 2007. In retrospect, it should have sought more changes at that time, Pohl says. So now, "we are asking for more than we really want or need so we don't wind up, six or seven years from now, doing this all over again."

With several fund trustees retiring, Dodge & Cox needs shareholder approval for their replacements and decided this would be a good time to ask them to lift other restrictions it sees as outdated and unnecessary.

For example, the restriction against investing in companies "for the purposes of exercising control" has raised questions about whether Dodge & Cox can trade shares in companies when it is talking to management on corporate governance issues.

And although it has no intention of buying illiquid stocks, it might like to buy more of a type of unregistered bond in its income fund.

Built to last

Janachowski says he would be more worried about these changes if Dodge & Cox funds had one or two managers and a new one could bring in abrupt changes of strategy. But Dodge & Cox funds are team-managed.

"They have built their firm to last generations. There's not one renegade manager who's going to take the fund off course," he says. "Based on that, I would give them the benefit of the doubt" and approve the requested changes.